Optus calls for rethink as it threatens Govt budget windfall

TONY EASTLEY: The Federal Government's projections of reaping up to $3 billion from the sale of a new wireless spectrum has hit a major snag with Australia's second largest telecommunications company, Optus, considering whether it will pull out of the auction.

The auction which is crucial to the next generation of tablets and smart phones is facing the risk of collapse after the Minister shocked telco executives on Friday by announcing a reserve price well above their expectations.

Senior Optus management held talks with its parent company SingTel at the weekend.

Lexi Metherell reports.

LEXI METHERELL: Telecommunications executives were caught off-guard when they learned how much the government was asking for the spectrum.

David Epstein is responsible for government affairs at Optus.

DAVID EPSTEIN: We were a bit surprised about the pricing because it doesn't fit in with our understanding of international benchmarks.

LEXI METHERELL: According to Optus the international benchmark is 38 cents per megahertz per head of population. The Government set its reserve price at $1.36.

David Epstein, who was once chief of staff to former prime minister Kevin Rudd, says it's difficult to make the business case to invest in the spectrum at that starting price.

DAVID EPSTEIN: The fact is we live in a connected world and Australians expect to pay the same prices for their telecommunication as people do overseas.

LEXI METHERELL: The auction is set down for April, just before the May budget, a budget the Government is struggling to keep in the black.

The Government had been banking on the three major players, Telstra, Optus and Vodafone, taking part in the spectrum sale and delivering it a big revenue windfall. But Vodafone has decided not to participate.

LEXI METHERELL: David Epstein:

DAVID EPSTEIN: The response to that shouldn't be a simple, well if three people aren't going to participate we'll just divide the market in two and lift the price accordingly. Things just don't work that way.

Ultimately these costs have to be passed onto consumers and people just won't buy our services if they're too expensive. They'll just adjust their use accordingly. And that affects the business case.

LEXI METHERELL: The Opposition suggested that the Government is setting the price at this high level to help resolve its budget issues. Would you agree with that?

DAVID EPSTEIN: Well look you know obviously the Government has to be mindful of revenue but in this sort of equation we have to be mindful of what customers want.

LEXI METHERELL: Optus is threatening to join Vodafone and walk away from the auction. But before it carries through with that threat David Epstein will be lobbying for the reserve price to be cut.

DAVID EPSTEIN: We would hope that some realism is brought to the process. I mean I think that would make for a more competitive Australian telecommunications market. It would make for more services and products to be brought to the Australian consumer at internationally competitive prices faster.

But these are not the only options before us and we can look at other ways of doing things other than acquiring spectrum.

So we just have to assess what we're going to do now. One company has already done that and they've said they're not going to participate. At this stage our minds are open.

LEXI METHERELL: The Communications Minister Stephen Conroy argues the price reflects the high quality of the spectrum and the investment the Government's made to free it up through the analogue to digital TV switchover.

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